Home Crises Fuel tax doubles as government struggles to honor fiscal target

Fuel tax doubles as government struggles to honor fiscal target


The Brazilian government announced a twofold increase in fuel taxes in an attempt to raise revenues and avoid missing this year’s fiscal target – a primary deficit of R$ 139 billion.

The tax on gasoline rose from R$ 0.3816 to R$ 0.7925 per liter, while the tax on diesel oil increased from R$ 0.2480 to R$ 0,4615 per liter. Taxes for ethanol also increased – producers will pay R$ 0.1309 per liter, from the current R$ 0.1200 level, while the ethanol tax for distribution will rise from zero to R$ 0.1964 per liter.

The decision comes only a week after the Brazilian Federal Court of Audit (TCU) said that the federal government could miss the 2017 fiscal target. According to the court report, a large part of this year’s expected revenue refers to public asset sales scheduled to the end of this year that could face delays.

Out of the R$ 27.9 billion in expected revenue from public concessions and permits, almost 70%, or R$ 19.3 billion, refer to tenders that are scheduled to conclude in the last two months of 2017. It would be R$ 11 billion in November and R$ 8.3 billion in December.

“It is worth noting that an eventual R$ 19.3 billion revenue frustration would raise the federal government’s annual primary deficit to more than R$ 161 billion if no compensatory measure is adopted,” said the TCU report. The document stressed that the government would also have a “short time to take alternative compensation measures,” like limiting spending or raising other revenues.

Investors were wary of the Brazilian fiscal target early on this year. A recent survey by the Finance Ministry conducted at the start of this month showed that economic experts believed that Brazil’s primary deficit in 2017 would reach R$ 145.268 billion – above the R$ 139 billion deficit target. In June, investors expected a lower primary deficit, of R$ 142.0551 billion.

In a statement, the Finance Ministry said that the decision to raise fuel taxes was “absolutely necessary to preserve the fiscal adjustment and the trajectory of recovery in the Brazilian economy.”

Besides raising taxes, the government also decided to cut R$ 5.9 billion in spending but added that non-recurrent revenues expected towards the end of this year would compensate for those cuts.